SEC Will Issue Options-Timing Rule; Tells PCAOB to Delay Stock Options Alert

The Securities and Exchange Commission (SEC) has asked the Public Accounting Oversight Board (PCAOB) to delay issuing an alert to accounting firms related to backdating stock options, the Wall Street Journal reported late last week. The SEC wants to complete its work on its own proposed rule regarding executive compensation. SEC Chairman Christopher Cox has said that he expects their rule, which should be completed later in the summer, to address backdating issues.

An SEC spokesman said that it makes sense for the SEC and PCAOB “to go out with it at the same time” . . . to “avoid confusion in the marketplace,” the Journal says.

The Journal also reported that the SEC wants the PCAOB to limit its guidance to current and future options grants, rather than suggest that auditors review past practices.

A PCAOB spokesperson declined comment but said there is “normal give and take that goes on between the PCAOB and SEC.” The PCAOB wanted to issue the guidance so that smaller firms could look at options-grant practices, the Journal reports.

Two SEC commissioners, speaking at a conference of the International Corporate Governance Network, provided differing views of the options issue and the SEC’s approach to rulemaking. Commissioner Paul Atkins said that the stock-option backdating scandal could have a negative effect on legitimate use of stock option grants for executive compensation, according to CFO.com. “Well-timed stock options” benefited shareholders, he said, because they may allow the company to spend less cash on salaries.

Options are a “cash-preserving approach to compensation,” Atkins said, and grants are made by a company’s board in good faith. He warned that the SEC “should not through enforcement actions undercut the business judgment rule – we do so to the peril of stockholders.”

Recent SEC rulings have been struck down in court for lack of empirical evidence, according to commissioner Cynthia Glassman, who also spoke at the International Corporate Governance Network, CFO.com reports. Glassman cited the hedge-fund adviser registration requirement struck down by the D.C. Circuit Court three weeks ago as an example of rulemaking by the SEC that was characterized by “lack of rigorous thinking and empirical support.” A nonanalytical study was used by the commission to justify its rule.

Glassman expressed disappointment that the commission “wasted so much time and effort” on rules overturned in courts and urged the SEC to establish rules based on empirical evidence, CFO.com said. She also suggested that the SEC should turn its attention to auditor concentration in the accounting industry and the ways that different regulatory systems interact and affect investors.

Commissioner Glassman, an economist, will be retiring from the SEC as soon as a replacement is named.

You may like these other stories...

Although decreasing, the number of audit deficiencies attributed to fair value measurement and impairment engagements continues to be significant, according to the results of a new survey from Atlanta-based CPA firm Acuitas...
The Public Company Accounting Oversight Board (PCAOB) on Monday reminded auditors that they should continue adhering to the board’s existing standards when considering an organization’s ability to operate as a...
Public Company Accounting Oversight Board (PCAOB) inspectors are finding “significant audit deficiencies” in the area of revenue, the US audit watchdog stated in a staff audit practice alert issued on Tuesday.The...

Already a member? log in here.

Upcoming CPE Webinars

Nov 5Join CPA thought leader and peer reviewer Rob Cameron and learn ways to improve the outcome of your peer reviews while maximizing the value of your engagement workflow.
Nov 18In this session Excel expert David Ringstrom, CPA tackles what to do when bad things happen to good spreadsheets.
Nov 19How do you minimize redundant work and unnecessary steps to maximize the amount of work moving through your firm?
Nov 20Kristen Rampe will share how to uncover new opportunities with your clients by asking powerful questions.